Lessons for Canada from pharmacare systems around the world

Sara Tatelman | November 23, 2018

In its 2018 budget, the federal government created an advisory council on the imple­mentation of national pharmacare, led by former Ontario health minister Eric Hoskins. The council, which solicited submissions from Canadians between June and September, is expected to release its final report in the spring.

Whatever the report recommends, Canada is closer to a national pharmacare system than it’s been in decades. And as expensive drugs for rare diseases proliferate and aging workforces are prescribed more medications, it will likely be a relief for employers to shift many of these costs to the government.

A 2015 survey by Aon found 92 per cent of human resources leaders believe prescription drugs are a fundamental element of the Canadian health-care system, and 31 per cent believe pharmacare would improve their employees’ health.

“As to whether it will help employers, it will depend on how the model is funded, on who’s covered in the model, on whether there’s a mandated formulary,” says Jennifer Schmidt, a principal at Mercer Canada. “There are so many different things that will impact whether employers will benefit from pharmacare, that it’s difficult to say at this moment.”

In the meantime, Canada can look to other countries for ideas on what to adopt and what to avoid, but it can’t copy another system wholesale, says Steve Morgan, a professor of health policy at the University of British Columbia.

“No country funds prescription drugs through an entirely different mechanism than they fund the rest of their health-care services. You don’t separate prescription medicines from hospital care and physician services because . . . you can’t get a prescription without going to see a doctor, and many prescriptions are designed in some sense to keep you healthy and out of hospital.”

Canada can look to Britain for pointers on phar­macare copayments, partly because its constituent countries have some leeway in implementing their own plans. Residents of Northern Ireland, Scotland and Wales, for example, enjoy free prescriptions, while those in England have a modest copay of £8.80 per prescription.

As well, British residents requiring more than three prescriptions in a three-month period or more than 12 prescriptions each year can buy prepaid certificates that reduce the copay. Plus, seniors, young people under 16, people on social assistance, pregnant women and new mothers qualify for free prescriptions altogether. Importantly, Britain’s system doesn’t have deductibles or coinsurance. For expensive drugs treating rare diseases, even a 10 per cent coinsurance can be prohibitively expensive, notes Morgan.

“Now, you could think there must be massive waste in the way drugs are being consumed because there are no user fees,” and therefore no economic incentive to reduce use, says Marc-André Gagnon, a health policy professor at Carleton University. But, he argues, that’s not the case at all, as Britain minimizes over-prescribing and the associated costs by pricing drugs based on their therapeutic value.

The National Institute for Health and Care Excellence and the Scottish Medicines Consortium review certain expensive drugs to ensure they’re worth the cost. If the review provides a positive guideline for a drug, every local primary trust — the equivalent of a local health authority — must include it on its formulary. But if it provides a negative guideline, primary trusts can still cover it.

“It’s designed to be a mechanism to ensure drugs for which there may be differences in interpretation in evidence and may have a significant budget impact . . . get appraised on a national level so they don’t have postcode prescribing,” says Morgan.

The issue with British pharmacare, he adds, is that outside of the NICE guidelines for exceptional drugs, it lacks a positive formulary. There is a national blacklist of drugs that aren’t covered by the public system, but besides that, primary trusts decide on local formularies independently. This fragmented system, argues Morgan, fails to harness the country’s collective buying power.

Kiwi cash management

New Zealand, on the other hand, successfully wields its consolidated market power. “In terms of getting value for money, they are the best ones,” says Gagnon. “They will use every trick in the book to reduce prices.”

To do so, the country relies on two main tech­niques, notes Åke Blomqvist, a health policy scholar at the C.D. Howe Institute. One is its national formulary and the other is its national pharmaceutical insurance plan that acts as the sole buyer of drugs covered by that formulary.

Many have criticized New Zealand’s restrictive formulary, arguing it excessively limits patients’ choice. For example, a 2016 study by the Canadian Health Policy Institute found that, of 248 drugs in nine clinical categories, 90 per cent were approved for marketing in Canada compared to just 74 per cent in New Zealand. It warned that reduced access to drugs could lead to an increase in hospitalization.

“Generally speaking, as it relates to newer medicines, the New Zealand system does take a cautious approach. It wants rock-solid evidence that the drug is comparatively safe and comparatively effective in relation to other treatments,” says Morgan. “As a consequence, it’s not that New Zealanders will never get access to those treatments, but that access may take a little more time. It’s fair for patients to say they want to have access more quickly, but as a system, they’ve got to weigh the pros and cons.”

By having only one pharmaceutical buyer, New Zealand can “go to the pharmaceutical companies and say, either you meet our price or we won’t list you on our formulary,” says Blomqvist. “And the result of having a single buyer that can threaten to reduce sales in a substantial market to zero means that single buyer has a very powerful bargaining position.”

Interestingly, New Zealand’s single-payer system began in the mid-90s as a way to guarantee supply, not reduce costs. As a small, isolated country with a nearly non-existent local pharmaceutical industry, it wasn’t easy to drum up supply when the need arose.

“So what they started doing was requiring manufacturers to guarantee supply,” says Morgan. “Manufacturers of generic medicines had to guarantee the medicine would be available as needed by the popu­lation, and if it could not meet the demand, it had to pay for the brand name drug or another licensed generic to be supplied.” That tendering process was quite successful, as many companies wanted sole access to a significant market.

As New Zealand demonstrates, the tendering process can be powerful, but Canada won’t be taking advantage for quite some time. In January 2018, the pan-Canadian Pharmaceutical Alliance came to an agreement with the generic drug industry: the latter would reduce prices by 38 per cent in exchange for suspending open tenders until 2023. “The amount of savings would have been way more substantial with tenders compared to the deal that we got,” says Gagnon. “It’s not nothing — it’s an interesting deal — but it’s far from optimal.”

In New Zealand, 35 per cent of adults had private health insurance in 2015, the last year the country collected this data. But Morgan still sees a role for private payers in a Canadian system. “If universal pharmacare means a public payer buying that core formulary, unions and employers may continue to wish to have complementary private insurance,” he says, noting employers’ plans could cover copay­ments, treatments that haven’t yet been added to the national formulary and brand name drugs.

“There’s always going to be a role for employers,” says Hassan Yussuff, president of the Canadian Labour Congress. In addition to covering drugs not included on the national formulary, he argues plan sponsors would continue to provide key coverage for dental care, mental-health visits and other paramedical treatments. Aon’s 2015 survey supports Yussuff’s prediction, since 85 per cent of respondents said they’d reallocate savings from a national pharmacare program to other health and wellness programs. Half (53 per cent) would re-invest in other human resources programs and 24 per cent would increase employees’ direct compensation.

Broadening the alliance

Allowing private insurers to join the pan-Canadian Pharmaceutical Alliance would strengthen the group’s bargaining power and likely result in lower drug prices, says the C.D. Howe Institute’s Åke Blomqvist. But that might “indirectly imply we are effectually welching on our obligation to contribute to covering [research and development] costs that the pharmaceutical industry has incurred in developing new drugs for everybody in the world,” he adds. “We risk retaliatory actions [from other countries] in areas . . . [such as] common defence and combating climate change. If you are perceived as not carrying your weight in one area, you’re likely to come under pressure in others.”

United we bargain, divided we beg

In 2015, Denmark’s national pharmaceutical procurement organization Amgros launched the Nordic Pharmaceuticals Forum in which Denmark, Iceland and Norway developed a shared procurement model for drugs for rare diseases, as well as for preferred antibiotics.

Sweden is participating as an observer, since it has a more decentralized pharmacare system than the other countries. “That’s a problem for us because we would have to get 31 [Swedish county health councils] to accept to [enter] into a shared tender,” says Flemming Sonne, the chief executive officer at Amgros.

Because of their relatively small populations, these countries have had difficulty procuring numer­ous drugs. “We would like to invite [manufacturers to supply] the Nordic countries and they would have a good contract based on that,” says Sonne. That is, the Nordic countries are taking the New Zealand model to the next level through international collaboration.

Austria, Belgium, Ireland, Luxembourg and the Netherlands participate in a similar project focused on orphan drugs. Their group, Beneluxa, runs joint product assessments, horizon scanning, pricing negotiations and reimbursements. In July 2018, Belgium and the Netherlands concluded the group’s first successful joint negotiation, coming to an agreement with Biogen, the pharmaceutical company manufacturing Spinraza, which treats spinal muscular atrophy.

“We demonstrate that countries can jointly negotiate the reimbursement of orphan drugs to the benefit of their patients,” said Maggie De Block, Belgium’s minister of social affairs and public health, in a release. “This is a very important signal for everyone involved in Beneluxa and an extra motivation to further develop this international cooperation.”

That kind of collaboration could also be helpful for Canadian plan sponsors. Indeed, Mercer’s submissions to the advisory council focused on its clients’ common issues, particularly chronic disease and significant cost burdens around specialty drugs, says Schmidt.

Canada’s provincial public drug plans negotiate collectively with drug manufacturers through the pan-Canadian Pharmaceutical Alliance, but those negotiations aren’t binding on each province. That, argues Morgan, is problematic: since manufacturers aren’t guaranteed the entire public Canadian market, they’re not as likely to offer their best price.

“Canada has to recognize that the idea of going it alone by province or, heaven forbid, by individual corporate drug plan is ridiculous because you are virtually powerless in the high-stakes world of pharmaceutical price negotiation,” says Morgan. “You need the power of collective buying and the power of being united in the decision to say no, so you can’t get whipsawed by [a company] saying you should cover this [drug] because your neighbouring jurisdiction does.”

Why not Quebec’s hybrid model?

In 1997, Quebec established a mandatory universal pharmacare program under which all residents must have either public or private drug coverage. Employers offering health benefits to workers or retirees must provide prescription drug coverage that’s equal to what’s available through the public plan, and can’t deny coverage or raise premiums because of age, sex or state of health. If private coverage isn’t available, residents must purchase premium-based drug coverage through the government. In addition to premiums, beneficiaries of the public plan must also pay monthly deductibles and coinsurance.

Although the public/private model achieves universality of drug coverage, Carleton University’s Marc-André Gagnon warned the House of Commons’ standing committee on health against adopting the Quebec approach because of significant inequities on both the public and private sides. Gagnon, who has extensively studied the impact of Quebec pharmacare, stresses the program involves a substantial amount of premium-based financing and user charges that put a greater financial burden on low-income households.

As well, while a goal of Quebec’s hybrid plan was to reduce public spending on drugs, that hasn’t happened. The province spends more per capita on drugs ($1,087) than the rest of Canada ($912). At the same time, the median expenditure for countries in the Organisation for Economic Cooperation and Development with a universal public drug plan is $603 per capita. The health committee report also cited data showing average out-of-pocket expenditures on drugs are highest in Quebec ($1,495) and lowest in Ontario ($823).